What happens if you get tax audited in Australia? It’s a question that can send shivers down the spine of any taxpayer. A tax audit by the Australian Taxation Office (ATO) can be a daunting and stressful experience. In this blog, we’ll check out the key triggers for ATO audits and what really happens during the audit process. We’ll also discuss ways to avoid an audit and make the process smoother if you find yourself facing one.

Why Do Tax Audits Happen?

Tax audits are not random; they usually happen for specific reasons. The ATO carefully selects taxpayers for audits based on certain criteria. To stay out of trouble, it’s essential to understand what the ATO looks for when deciding who to audit.

1. Failing to Declare Income

One sure-fire way to attract the ATO’s attention is by not declaring all your taxable income. This includes:

• Capital Gains: If you’ve sold assets like shares or property and didn’t report the capital gains, you’re likely to raise red flags.
• Undeclared Foreign Income: If you have income-generating assets overseas, receive income from foreign sources, or work abroad, it must be declared in your tax return.
• Unreported Bank Interest: Even small amounts of bank interest should be declared, as banks report all interest payments to the ATO.
• Not Declaring Business Takings: Small businesses, especially cash-only ones, are closely monitored. If your business doesn’t align with industry benchmarks, it can trigger scrutiny.

2. Claiming Deductions You’re Not Entitled To

The ATO is vigilant about work-related deductions and looks closely at taxpayers who claim more than they’re entitled to. Remember these golden rules:

• Claim only what you genuinely spent on work-related expenses.
• Don’t claim private or domestic costs unrelated to your job.
• Keep detailed records to support your deductions.

The ATO is particularly concerned about taxpayers taking advantage of concessions without proper substantiation, such as the $300 deduction concession.

3. Income Out of Line with Lifestyle

If your declared income doesn’t match your lifestyle, it can raise suspicions. The ATO can assess your assets and estimate the income needed to support your lifestyle. Sometimes, they even use third-party data, like property records and social media, to cross-check your claims.

What Happens During A Tax Audit?

The auditing procedure is tedious and frightening. The taxpayer has the burden of evidence, and audits might take a long time. You must be prepared to provide the ATO with any information they seek and have all required paperwork at the ready.

Avoiding an Audit and Making It Easier

While you can’t entirely eliminate the risk of an audit, there are steps you can take to reduce the likelihood and make the process more manageable:

• Maintain Good Systems and Processes: Implement accounting software and efficient systems to ensure accurate record-keeping.
• Seek Professional Help: Engage a qualified tax agent or accountant to assist with your tax returns. Their expertise can help you navigate complex tax laws and reduce the chance of errors.
• Consider Audit Protection Insurance: Audit insurance can cover accountancy and legal fees incurred during an audit. It provides peace of mind and financial protection in case of an audit.

Conclusion

To conclude, facing tax audits in Australia is a serious concern, but understanding the triggers and being prepared can make the process less daunting. It’s all about honesty, keeping accurate records, and seeking professional advice, which can be your best ally in avoiding or successfully navigating a tax audit. And if you face any ATO Tax audit, you can consult KPG Taxation, as their expert tax agents can help you out with this difficult time and guide you through it.